Are Loans Taxed Twice??

[MoJo]

10 minutes ago, austin3515 said:

Oh MoJo, I guess you got up on the same side of the bed as usually do.

Do I think that legislation that helps the "poorest" Americans preserve their retirement nest-eggs will prove to be a popular idea on both sides of the aisle?  Yes, I do.  Realistically we are not talking about a change, at least in my opinion, that is going to break the bank.  I know that 1/5th of the US economy was not important enough to get a CBO score before passing legislation in the House, but I think my change is critical enough to warrant that simple task.  I'd venture a guess that most people will default.

I'm dealing with a situation now where someone took a $40K loan and his employer was sold just 6 months later.  He either writes a $39,000 check or defaults.

First, learn what "tongue in cheek" means, then re-read my post with that knowledge.

Second, considering legislation that potentially kicks the "poorest" American's off health insurance (and consequently actual health care) just made it through the House, I dispute your contention that CongressCritters care at all about the "poorest."

Third, they did it before (TRA86 that cut the 402(g) limit by, what, 80%?).

Fourth, you apparently have more of those funny cigarettes, if you think ANYTHING bi-partisan is going to pass in the foreseeable future (and it really hasn't in the past 8-1/2 years)

Fifth, your "$40k" loan scenario is probably just another reason why plan loans are a bad idea.  One never knows anymore when one's job is going to be eliminated without warning.  It's happened to me (and thankfully, I heed my own advice that "Loans... EVIL!"

[My 2 cents]

Let us not forget that Congress chose to enact a law that will prevent states from establishing retirement savings vehicles for employees of companies not otherwise doing anything to facilitate accumulation of funds for their rank and file employees, thus ensuring that many such people will have nothing but Social Security to rely on after their working days end.  How much concern is to be found in Congress for poor Americans?

[austin3515]

OK well listen, I had the idea.  Personally I think it is a good one.  I'm going to let my Senator worry about the politics, I'm just way too logical to worry about that piece of it!

[MoJo]

41 minutes ago, austin3515 said:

OK well listen, I had the idea.  Personally I think it is a good one.  I'm going to let my Senator worry about the politics, I'm just way too logical to worry about that piece of it!

Nobody is doubting the logic of the idea - just the efficacy of spending oxygen on getting it done....

What we really need (dare I say!) is real retirement plan reform that actually works towards a retirement income, rather than throwing obstacles in the way....

[ubermax]

17 hours ago, Lou S. said:

As for the double taxation. No the principal replaces principal that has never been subject to taxation and the interest is taxed just like any other gains of a retirement plan.

Lou , I think you're referring to just the tax at the back end when the money is withdrawn - not sure if you read the article that 2 cents noted above , but it seems to support the idea that the interest paid on the K loan during its' lifetime is from after-tax dollars and  hence the double taxation of the interest paid .

In the response by 2 cents above , he assumed a no interest loan and so it's only principle replacing principle like you said.

[Lou S.]

1 hour ago, ubermax said:

Lou , I think you're referring to just the tax at the back end when the money is withdrawn - not sure if you read the article that 2 cents noted above , but it seems to support the idea that the interest paid on the K loan during its' lifetime is from after-tax dollars and  hence the double taxation of the interest paid .

In the response by 2 cents above , he assumed a no interest loan and so it's only principle replacing principle like you said.

I'm aware of the argument. I reject the notion of double taxation. Unless you are taxing a 401(k) loan because you are  trying to boost the rate of return of your 401(k) plan the argument of double taxation makes little sense.

 

 

[ubermax]

15 minutes ago, Lou S. said:

I'm aware of the argument. I reject the notion of double taxation. Unless you are taxing a 401(k) loan because you are  trying to boost the rate of return of your 401(k) plan the argument of double taxation makes little sense.

 

 

No, the loan isn't taxed ; the interest on the loan is from after tax dollars and then that interest with any growth would be taxed again at distribution .

[My 2 cents]

1 hour ago, ubermax said:

No, the loan isn't taxed ; the interest on the loan is from after tax dollars and then that interest with any growth would be taxed again at distribution .

Nobody is saying otherwise, but compared to the loan itself (which is not double-taxed), the magnitude of the interest that is double-taxed should be relatively small.   Of course, while the loan interest is accumulating, the investment income on the non-loaned balance of the account would be that much less, so maybe, when all is said and done, those double-taxed interest payments are just serving to bring the account balance closer to what it would have been had there been no loan.  To analyze it that far, unfortunately, might require the use of parallel universes.  So let's just acknowledge that the interest on the unpaid portion of the loan probably results in some double-taxation but not the loan itself.

[MoJo]

6 minutes ago, My 2 cents said:

....when all is said and done, those double-taxed interest payments are just serving to bring the account balance closer to what it would have been had there been no loan.

Hallelujah!!!!!

 

[ubermax]

37 minutes ago, MoJo said:

Hallelujah!!!!!

 

Agreed , I'll second that !!!

[Amakudari]

Definitely all valid answers. I was thinking about this today.

I see it like this. Generally, all contributions (Pre Tax Gross Income) to my 401k are tax free. I took out a loan of $20,000.00 from my 401k to make a downpayment on my first home. I am now repaying my(self) 401k $20,000.00 plus 4% interest from my Net Income (taxed income). When I retire, I will be taxed on my distributions from my 401k. Some seem to argue I am being taxed twice, others argue I am only being taxed once because I have to repay myself and it does not matter where the money came from (as long as I did not take it from Joe down the street).

Double taxation is a dubious claim because I have to pay myself back, but what is NOT happening is this:
I borrow $20,000.00, tax free, from my 401k.
I place a $20,000.00, tax free down payment on a new home.
I repay my(self) 401k with pre tax gross income. <<<< (I wish!!!)
Wash. Rinse. Repeat. <<<<

(If this were possible, I would own a second home, a boat and buy all my groceries with money borrowed from my 401k and never pay taxes on it. Then die on my boat after I retire with no 401k savings.)

I figure there are three ways to get around this.
Option 1: Find work outside of the US and request the amount of income that places you above the taxable threshold be paid in stocks or under the table. And be sure not to return to the US and buy homes, expensive carpets and coats made out of funny looking animals.

Option 2: Become a mob boss and don't pay taxes. Use that income to repay yourself. 

Option 3: Don't borrow from your 401k.

[Bill Presson]

I'm just happy this thread was resurrected since I missed it the first time!

[Tom Poje]

Bill-

You crack me up, reminding me of the days when I worked Pentabs support and someone called and asked why the compensation for the HCEs was getting reduced. The old family 'aggravation' rules - somehow the guy coded the system as family members but didn't know the rules that it was combined comp of all family members that was capped at the comp limit. and his response was somewhat similar to yours "I must have been asleep when they came out with that rule"

[mbrogers]

The Advisor Insight 

When you borrow money from your 401(k) plan there are no immediate taxes involved. However, when you pay off your loan, unlike 401(k) contributions which are made pre-tax, the loan payments are after-tax. As soon as your loan payments hit your 401(k) plan they become pre-tax money and, therefore, when you take it out later in life (retirement) you will be taxed on that amount again.

For example, you take out $10,000 as a loan, then start to pay it back into the plan with after-tax money. When you retire and withdraw that $10,000, it will be taxed again so the same pool of money is actually double taxed.

 

Michael Mezheritskiy
Milestone Asset Management Group LLC
Avon, CT

[RatherBeGolfing]

12 minutes ago, mbrogers said:

When you borrow money from your 401(k) plan there are no immediate taxes involved. However, when you pay off your loan, unlike 401(k) contributions which are made pre-tax, the loan payments are after-tax. As soon as your loan payments hit your 401(k) plan they become pre-tax money and, therefore, when you take it out later in life (retirement) you will be taxed on that amount again.

For example, you take out $10,000 as a loan, then start to pay it back into the plan with after-tax money. When you retire and withdraw that $10,000, it will be taxed again so the same pool of money is actually double taxed.

 

Doesn't your scenario leave out the $10,000 loan that you didn't pay taxes on?

I have $0 so I take a loan of $10,000

I now have $10,000

I receive income of $50,000 that I pay taxes on

I now have $60,000, but I only paid taxes on $50,000

I repay the $10,000 loan with $100 interest

I now have $49,900 and I paid taxes on $50,000

When I withdraw that $10,100, I will be taxed twice on $100, and once on $10,000

[mbrogers]

Nope! it’s very simple but for some reason this whole thread is dedicated to making something so easy to understand so complex lol. What everyone is failing to understand and realize is that you aren’t simply getting $10,000 tax free!!!! It’s a loan! You are paying this loan BACK! And you are paying this loan back with TAXED INCOME! So if you borrow $10K pretaxed dollars and then pay it back whether over 1 week or 3 years with TAXED INCOME then you have paid taxes on that $10K loan. And at retirement, when you go to withdraw that same $10K you paid back with TAXED INCOME, you will pay taxes again! Therefore you pay taxes twice! It’s maddening how people don’t get this. 

[Mike Preston]

24 minutes ago, mbrogers said:

The Advisor Insight 

When you borrow money from your 401(k) plan there are no immediate taxes involved. However, when you pay off your loan, unlike 401(k) contributions which are made pre-tax, the loan payments are after-tax. As soon as your loan payments hit your 401(k) plan they become pre-tax money and, therefore, when you take it out later in life (retirement) you will be taxed on that amount again.

For example, you take out $10,000 as a loan, then start to pay it back into the plan with after-tax money. When you retire and withdraw that $10,000, it will be taxed again so the same pool of money is actually double taxed.

 

Michael Mezheritskiy
Milestone Asset Management Group LLC
Avon, CT

You didn't take the time to read the whole thread, did you?  Anybody who claims that any part of the principal repaid is double taxed is, shall we say, mathematically challenged.

[Mike Preston]

3 minutes ago, mbrogers said:

Nope! it’s very simple but for some reason this whole thread is dedicated to making something so easy to understand so complex lol. What everyone is failing to understand and realize is that you aren’t simply getting $10,000 tax free!!!! It’s a loan! You are paying this loan BACK! And you are paying this loan back with TAXED INCOME! So if you borrow $10K pretaxed dollars and then pay it back whether over 1 week or 3 years with TAXED INCOME then you have paid taxes on that $10K loan. And at retirement, when you go to withdraw that same $10K you paid back with TAXED INCOME, you will pay taxes again! Therefore you pay taxes twice! It’s maddening how people don’t get this. 

I repeat: Anybody who claims that any part of the principal repaid is double taxed, is, we shall say, methematically challenged.

[mbrogers]

What part of you are paying back the loan with taxed income doesn’t register lol?? If I make $10K a month then I’m taxed on that $10K. If then I pay back a 401k loan AFTER I’ve be taxed on said $10K then I have paid back the loan with TAXED income. Yet when I go to withdraw that $10K that I paid off over the loan term from my retirement then I will pay taxes on that money a second time. If anyone is mathematically challenged then it wouldn’t be me lol. 

[RatherBeGolfing]

1 minute ago, mbrogers said:

What part of you are paying back the loan with taxable income doesn’t register lol?? If I make $10K a month then I’m taxed on that $10K. If then I pay back a 401k loan AFTER I’ve be taxed on said $10K then I have paid back the loan with TAXED income. Yet when I go to withdraw that $10K that I paid off over the loan term from my retirement then I will pay taxes on that money a second time. If anyone is mathematically challenged then it wouldn’t be me lol. 

Again, you are ignoring the $10,000 you received tax free as a loan...

 

[mbrogers]

Actually that would be you that is ignoring what I originally posted which is you didn’t get ANYTHING TAX FREE! The $10K is (drum roll) A LOAN! Therefore you are paying $10K back using your TAXED INCOME! So the $10K you keep stating is tax free is most certainly not tax free. If you make $10K a month and are allocating $800 PRE-TAX towards your 401K then you are only taxed on $9200. If you make $10K a month and pay back that 401k loan then you are paying that loan with all 10K taxed first! If after 3 years of depositing 800 pretax dollars into your 401K you have $24K and you borrow $12K then the money you use to pay back that $12K is coming from your TAXED INCOME! So that money has already been taxed that is used to pay back the 401K loan. Then at retirement it is taxed a second time! You keep making the mistake of treating the loan as non taxed event when in reality the monies you are using every time you make a payment are taxed monies not pretaxed! It would be different if when you are paying back that loan it was put into a Roth so that you weren’t paying taxes twice. The money you allocate to a 401k (unless a Roth) isn’t TAXED aka lowers your taxable income! But you pay back the 401K loan with already taxed money (income).

[Mike Preston]

14 minutes ago, mbrogers said:

Actually that would be you that is ignoring what I originally posted which is you didn’t get ANYTHING TAX FREE! The $10K is (drum roll) A LOAN! Therefore you are paying $10K back using your TAXED INCOME! So the $10K you keep stating is tax free is most certainly not tax free. If you make $10K a month and are allocating $800 PRE-TAX towards your 401K then you are only taxed on $9200. If you make $10K a month and pay back that 401k loan then you are paying that loan with all 10K taxed first! If after 3 years of depositing 800 pretax dollars into your 401K you have $24K and you borrow $12K then the money you use to pay back that $12K is coming from your TAXED INCOME! So that money has already been taxed that is used to pay back the loan. Then at retirement it is taxed a second time! You keep making the mistake of treating the loan as non taxed even when in reality the monies you are using every time you make a payment are taxed monies not pretaxed! It would be different if when you are paying back that loan it was put into a Roth so that you weren’t paying taxes twice. The money you allocate to a 401k (unless a Roth) isn’t TAXED! But you pay back the 401K loan with already taxed money. 

Yoou really need to review the whole thread.  The loan comes out of the plan without tax ramifications. If you put that $10,000 in a safe place and don't spend it, and then repay it to the plan at some point you should be able to see that there is no increase in tax over what you would otherwise pay.  Try to set up a spreadsheet that proves your point.  I'm ever the optimist so I hope that will convince you your position is so very, very wrong.

[Mike Preston]

22 minutes ago, mbrogers said:

Actually that would be you that is ignoring what I originally posted which is you didn’t get ANYTHING TAX FREE! The $10K is (drum roll) A LOAN! Therefore you are paying $10K back using your TAXED INCOME! So the $10K you keep stating is tax free is most certainly not tax free. If you make $10K a month and are allocating $800 PRE-TAX towards your 401K then you are only taxed on $9200. If you make $10K a month and pay back that 401k loan then you are paying that loan with all 10K taxed first! If after 3 years of depositing 800 pretax dollars into your 401K you have $24K and you borrow $12K then the money you use to pay back that $12K is coming from your TAXED INCOME! So that money has already been taxed that is used to pay back the loan. Then at retirement it is taxed a second time! You keep making the mistake of treating the loan as non taxed even when in reality the monies you are using every time you make a payment are taxed monies not pretaxed! It would be different if when you are paying back that loan it was put into a Roth so that you weren’t paying taxes twice. The money you allocate to a 401k (unless a Roth) isn’t TAXED! But you pay back the 401K loan with already taxed money. 

OK, I'll bite.  Forgetting everything else, describe where the proceeds of the loan go.

[mbrogers]

36 minutes ago, Mike Preston said:

Yoou really need to review the whole thread.  The loan comes out of the plan without tax ramifications. If you put that $10,000 in a safe place and don't spend it, and then repay it to the plan at some point you should be able to see that there is no increase in tax over what you would otherwise pay.  Try to set up a spreadsheet that proves your point.  I'm ever the optimist so I hope that will convince you your position is so very, very wrong.

I didn’t say there is any increase in tax but that you pay taxes twice. And I’ve made that extremely clear. Whatever you put in a 401K isn’t taxed and lowers your taxable income. Your 401K monthly loan payments aren’t paid with pre tax money therefore the money used to make those payments is taxed because it’s  treated as income. So if the 401K loan payments are paid with after tax money then at retirement it’s taxed a second time. If the loan payments came out pretax as contributions do then 1) your taxable income would remain the same and 2) you would only pay tax when you retired (once) 

$10,000 monthly salary 

 - $200  401K loan payment pretax 

= $9800 (taxable income)

- $2940 / 30 percent tax 

= $6860

 

versus 

$10,000 monthly salary (taxable income) 

- $3000 / 30 percent tax 

= $7000 

- $200 401K loan payment 

= $6800

 

The proceeds of the LOAN are irrelevant as it’s a loan not a withdrawal thus you should NOT be paying a loan back with taxed money yet are with a 401K loan. 

[ESOP Guy]

2 hours ago, mbrogers said:

The proceeds of the LOAN are irrelevant as it’s a loan not a withdrawal thus you should NOT be paying a loan back with taxed money yet are with a 401K loan. 

The whole transaction matters. . If you were correct my taxable income would be higher if I took out a 4k loan vs if I didn't but it isn't.   (Except for the interest).  Here is an extreme example but it proves my point. 

No 4k loan:

On pay date 1 I earn gross income of $10,000.  To keep it simple I put 100% into may 4k.   So my taxable income is $0.  On Pay date 2 I earn gross income of $10,000 once again I put 100% of it into my 4k.  So my taxable income is still $0.  One day after Pay date 2 I take a full distribution from my 4k account.  My taxable income is now $20k.

 

With a loan

On pay date 1 I earn gross income of $10,000.  I put 100% in my 4k plan.  My taxable income is $0.  One day after pay date 1 I take a $10,000 loan (ignore limits they don't matter for taxable issues).  My taxable income is still $0.

On pay date 2 I earn $10,000 and pay back the 4k loan.  So my taxable income is $10,000.   One day after pay date 2 I take a full 4k distribution of my $10,000 balance.  That increases my taxable income by $10,000 to a total of $20,000.  The exact same result as situation 1.  The only thing missing is interest.  That would be the part that would be taxed twice. 

The math just showed you were wrong. 

The flaw in your logic is you think the payments to the plan increase your income only if the loan exists.  It doesn't it increases it if you loan or don't have a loan.  Your logic is flawed and if you bother to do any set of numbers you like you will see you never pay taxes twice on the principal on a 4k loan.  

 

[MoJo]

11 hours ago, mbrogers said:

Nope! it’s very simple but for some reason this whole thread is dedicated to making something so easy to understand so complex lol. What everyone is failing to understand and realize is that you aren’t simply getting $10,000 tax free!!!! It’s a loan! You are paying this loan BACK! And you are paying this loan back with TAXED INCOME! So if you borrow $10K pretaxed dollars and then pay it back whether over 1 week or 3 years with TAXED INCOME then you have paid taxes on that $10K loan. And at retirement, when you go to withdraw that same $10K you paid back with TAXED INCOME, you will pay taxes again! Therefore you pay taxes twice! It’s maddening how people don’t get this. 

Let me give you an example that proves you wrong (and it's because money is "fungible.")

Day 1, you borrow $10,000, and you spend it.  You pay no tax on this money - because it is a loan.

Day 2, you repay the loan with $10,000 you had in a savings account, plus $0.01 interest.

Your "tax situation" is EXACTLY the same if you take the loan and spend it, repaying with other money you had, or if you DON'T TAKE THE LOAN, and use the $10,000 in savings for your purchase.  Your "tax consequences" do NOT CHANGE because you take the loan, and the TOTAL TAX you pay is exactly the same either way.

[Tom Poje]

I think this sums it up well. I like the missing dollar puzzle the person throws in, but also the fact if I borrow the 10,000 from the bank I am not taxed twice. since I was never taxed on the amount from the 401k it is the same thing.

Now if you want to argue the world is flat, well.....

 

https://thefinancebuff.com/401k-loan-double-taxation-myth.html

401k Loan Double Taxation Myth

I don’t know who started it. Suze Orman certainly helped spread it. She says that you shouldn’t borrow from your 401k (or 403b) plan because you will be double-taxed. I did a Google search and I found 5 priceless money-saving tips by Suze Orman:

“Also, never ever borrow against your 401k plan because you will pay double taxation on the money you borrow. Because you don’t pay taxes on the money you put into a 401k, when you pay back the loan (which you must do within five years, or 15 years if used to buy a home), you pay it back with money you have paid taxes on. Then, when you retire and take the money out again, you end up paying taxes on it a second time.”

This allegation is all over the place. It is a myth because there is NO double taxation. It’s a mind trick similar to that well-known “where’s the missing dollar” puzzle.

“Three men went into a hotel. The manager said the room was $30 so each man paid $10. A while later the manager realized the room was only $25 so he sent the bellboy to the 3 guys’ room with $5. The bellboy only gave each man $1 back and kept the other $2 for himself. Now 3 men paid $9 each for the room, which is $27. Add the $2 that the bellboy kept, and that’s $29. But the 3 men paid $30 originally. Where is the other dollar?”

I was able to find a good explanation for this puzzle. The $30 number is irrelevant. The correct math is $27 – $2 = $25. It makes no sense to add $2 to the $27 because it’s already a part of the $27. The $2 should be subtracted from the $27.

Now, back to our 401k double taxation myth. The fact that the loan has to be repaid with after-tax dollars is irrelevant, just like the $30 number in the hotel puzzle. If you didn’t borrow from the 401k plan but you borrowed from a bank, you’d have to pay the bank back with after-tax dollars as well. If you didn’t borrow from your 401k plan but you dipped into your own savings, you have to replace those savings with after-tax dollars too. What it really means is that a 401k loan is not tax deductible, just like any other consumer loan except a mortgage or a HELOC. Instead of saying you will be double taxed, they should just say that a 401k loan is not tax deductible, plain and simple.

[C. B. Zeller]

If anyone is interested in a mathematical analysis of this question, here is something I put together a while ago. Hopefully this puts the question to bed for anyone who is still unconvinced.

https://drive.google.com/file/d/1A2V2lkI6r9kL9YQPLA7beRmcmCOwJ6PU/view

[BG5150]

Here is an example I used when I taught a "lunch and learn" to new hires on Loans many years ago.

You have a balance of $20,000 in your 401(k) plan, all deferrals.  No taxes yet.  You take a loan of $10,000 from your deferral account that you did not pay taxes on yet.

You get a check for $10,000 and you take it to the bank and cash it.  You get all $1 bills because you always wanted to see what 10,000 bills look like.

Then you bring it all home, spread it on the bed, get naked and roll around in it. (My supervisor asked me to take out the 'naked' part for subsequent discussions).

So far, no taxes.

You do this every day for a month.  Then you scoop up all that cash, pile it up nicely and return it to the bank.  (STILL no taxes).

The next day, you write a check to the custodian for $10,100 for principal and interest.  Now, so far, only $100 of that money has been taxed.

A week later, you quit and decide you need the money for a "personal growth" trip through Europe.  You weren't the best investor, nor the worst, and your account had zero dollars in gains or losses.  You get a distribution of $20,100.  You are taxed on the totality of that amount.  And only $100 of it was taxed before.

[Larry Starr]

19 hours ago, mbrogers said:

I didn’t say there is any increase in tax but that you pay taxes twice. And I’ve made that extremely clear. Whatever you put in a 401K isn’t taxed and lowers your taxable income. Your 401K monthly loan payments aren’t paid with pre tax money therefore the money used to make those payments is taxed because it’s  treated as income. So if the 401K loan payments are paid with after tax money then at retirement it’s taxed a second time. If the loan payments came out pretax as contributions do then 1) your taxable income would remain the same and 2) you would only pay tax when you retired (once) 

$10,000 monthly salary 

 - $200  401K loan payment pretax 

= $9800 (taxable income)

- $2940 / 30 percent tax 

= $6860

 

versus 

$10,000 monthly salary (taxable income) 

- $3000 / 30 percent tax 

= $7000 

- $200 401K loan payment 

= $6800

 

The proceeds of the LOAN are irrelevant as it’s a loan not a withdrawal thus you should NOT be paying a loan back with taxed money yet are with a 401K loan. 

I wish we could waive a magic wand and make you see the mathematical error you are making. I wish you could just trust us that you ARE making an error.  But that probably won't happen.

This reminds me of the Monty Hall problem; there are still people who argue that you are NOT better off by switching doors (that it is just a 50/50 chance when really your odds are increasing to a 67% chance of winning).  https://en.wikipedia.org/wiki/Monty_Hall_problem

So, maybe (just maybe) this will work.  Let's have a loan with a 0% interest (if that was legal).  Now, borrow $10,000.  Now, pay it back at the rate of $100/week.  When you took out the $10k, you didn't pay tax on it (because it isn't a distribution, it's a loan just like you would get from the bank: the plan IS the bank!).  Now, when you pay it back, you are just giving the plan back the $10k you borrowed.  Assume you stuck it in your mattress because you ended up not needing it (the $10k "need" feel through).  After you have paid back the loan with the money you took out as a loan, how are you in any different tax situation than if you hadn't borrowed anything?

Is that any help? Probably not I guess.  Monty Hall! :-)

[XTitan]

Let me try.

Scenario 1 - You want to buy a $10,000 widget.  You earn $13,000 in wages, pay $3,000 in taxes, and with the remaining $10,000, you buy the widget.  Net result - $3,000 paid in taxes and 1 widget owned.

Scenario 2 - You want to buy a $10,000 widget.  You borrow $10,000 from your 401(k) and put it in the bank.  You earn $13,000 in wages, pay $3,000 in taxes, and with the remaining $10,000, you buy the widget.  You then repay the $10,000 to the 401(k) from the bank.  Net result - $3,000 paid in taxes and 1 widget owned. 

Scenario 3 - You want to buy a $10,000 widget.  You borrow $10,000 from your 401(k) and buy the widget.  You earn $13,000 in wages, pay $3,000 in taxes, and with the remaining $10,000, you repay the 401(k) loan.  Net result - $3,000 paid in taxes and 1 widget owned. 

You don't attribute the taxes to the loan repayment, but to the wages earned.

[david rigby]

11 minutes ago, XTitan said:

… a $10,000 widget.  

I have some widgets for sale. Price negotiable.

[Tom Poje]

the last time I bought a widget from you also charged me for taxes. the widget was broken and I returned it and you refunded everything but the taxes I paid claiming it was non-refundable. so I ordered a replacement and you charged me taxes again, thus I really did end up with being taxed twice. I'm leaving you 'alone' before I would order again from you.

[XTitan]

Fine - No more widgets. How about Instant Water?

[Tom Poje]

is that like powdered water?

I tried the powdered milk and that worked fine after adding water

Then I tried your the powdered potatoes and that worked fine after adding water.

I'm hesitant on ordering your baby powder....

[XTitan]

Aren't you the one who claimed that when you ordered some batteries that they weren't included, so you had to order them again?

[ESOP Guy]

2 hours ago, XTitan said:

Fine - No more widgets. How about Instant Water?

I always find instant water too dry.  

[XTitan]

26 minutes ago, ESOP Guy said:

I always find instant water too dry.  

For best results - just add water...